October 2012, Dean Baker

Following the most recent recession, an attempt has been made to explain current levels of unemployment as resulting from structural unemployment, or a mismatch between the skills of the unemployed and the types of jobs available. The evidence, however, indicates that the issue is actually a lack of aggregate demand. Since accepting one of these views over the other will lead to very different policy solutions, it is important to accurately assess the cause of unemployment.

This issue brief finds that the evidence is overwhelming consistent with the view that a lack of demand, caused by the collapse of the housing bubble is at the root of U.S. unemployment. In this context, measures that focus on improving skills - a remedy for structural unemployment - will have little effect on overall employment.

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